Greenbook/Tealbook

Prefatory Note The attached document represents the most complete and accurate version available based on original files from the FOMC Secretariat at the Board of Governors of the Federal Reserve System. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. Content last modified 04/01/2015. Class III FOMC - Internal (FR) June 19, 2009 CURRENT ECONOMIC AND FINANCIAL CONDITIONS Supplemental Notes Prepared for the Federal Open Market Committee by the staff of the Board of Governors of the Federal Reserve System Contents The Domestic Nonfinancial Economy ......................................................1 Errata................................................................................................1 The Domestic Financial Economy ............................................................1 Exhibits Commercial Bank Credit .................................................................2 Selected Financial Market Quotations .............................................3 The International Economy ......................................................................4 U.S. Current Account.......................................................................4 U. S. International Financial Transactions.......................................4 Exhibits U.S. Current Account.......................................................................4 Summary of U.S. International Financial Transactions...................6 ii Supplemental Notes The Domestic Nonfinancial Economy Errata In the box on page I-2 of Part 1, “Explanations for the Rapid Rise in the Unemployment Rate,” the third sentence of the second paragraph should read: “Although real GDP fell by more than real GDI in the first quarter of this year, that difference reversed only a small portion of the sharp rise in the statistical discrepancy since early 2007 (shown in the bottom right). The Domestic Financial Economy -1- -2- Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total Level1 May 2009 2007 H1 2008 H2 2008 Q1 2009 Apr. 2009 May 2009 10.9 4.1 4.6 -6.3 -12.9 1.3 9,461 Loans2 Total To businesses Commercial and industrial Commercial real estate 11.4 5.8 2.4 -6.3 -11.1 -1.7 7,101 19.5 10.6 13.6 9.8 13.0 2.9 -9.6 -.9 -16.9 -1.9 -15.6 -2.2 1,503 1,722 To households Residential real estate Revolving home equity Closed-end mortgages Consumer Originated3 Other 7.0 6.5 7.2 6.6 6.0 17.2 -1.0 12.2 -5.0 8.0 8.0 1.4 -4.1 12.9 -9.8 7.4 4.7 -4.5 -.8 8.4 -4.2 7.3 1.8 -36.9 -7.5 3.5 -11.8 -15.6 -5.1 -23.7 -6.8 -1.8 -8.8 -.4 -2.2 37.6 2,159 613 1,546 881 1,293 836 9.4 -5.6 30.6 -1.2 .9 -3.5 11.5 37.7 -16.0 -6.2 4.1 -20.3 -18.7 -27.7 -5.9 10.2 -3.6 29.7 2,360 1,365 995 Securities Total Treasury and agency Other4 Note: Yearly annual rates are Q4 to Q4; quarterly and monthly annual rates use corresponding average levels. Data have been adjusted to remove the effects of mark-to-market accounting rules (FIN 39 and FAS 115), the initial consolidation of certain variable interest entities (FIN 46), and the initial adoption of fair value accounting. Data also account for the effects of nonbank structure activity of $5 billion or more. 1. Billions of dollars. Pro rata averages of weekly (Wednesday) levels. 2. Excludes interbank loans. 3. Includes an estimate of outstanding loans securitized by commercial banks. 4. Includes private mortgage-backed securities; securities of corporations, state and local governments, and foreign governments; and any trading account assets that are not Treasury or agency securities. Source: Federal Reserve. Return on Assets Growth in Unused Commitments Percent (annual rate) 3 NBER Peak Quarterly, SA Quarterly Basis points 40 NBER Peak 200 NBER Peak Quarterly 30 2 Q1 C&I Loan Rate Spreads* Percent (annual rate) Q2 20 1 180 10 0 0 160 -1 -10 Top 25 BHCs Other BHCs -2 -20 -3 -30 140 Weighted Average Adjusted** Q1 -4 1985 1990 1995 Source: Call Reports. 2000 2005 -40 1990 1994 1998 Source: Call Reports. 2002 2006 120 1997 2000 2003 2006 2009 *The spread over market interest rate on an instrument of comparable maturity. **Adjusted for changes in non-price loan characteristics. Source: Survey of Terms of Business Lending. -3III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2007 Change to June 18 from selected dates (percentage points) 2009 Instrument Aug. 6 Mar. 17 Apr. 28 June 18 2007 Aug. 6 2009 Mar. 17 2009 Apr. 28 5.25 .13 .13 .13 -5.12 .00 .00 4.74 4.72 .24 .44 .13 .31 .18 .33 -4.56 -4.39 -.06 -.11 .05 .02 Commercial paper (A1/P1 rates)2 1-month 3-month 5.26 5.29 .44 .66 .31 .55 .26 .40 -5.00 -4.89 -.18 -.26 -.05 -.15 Large negotiable CDs1 3-month 6-month 5.34 5.27 1.08 1.83 .80 1.38 .36 .65 -4.98 -4.62 -.72 -1.18 -.44 -.73 Eurodollar deposits3 1-month 3-month 5.33 5.35 1.00 1.65 .90 1.40 .65 1.15 -4.68 -4.20 -.35 -.50 -.25 -.25 Bank prime rate 8.25 3.25 3.25 3.25 -5.00 .00 .00 Intermediate- and long-term U.S. Treasury4 2-year 5-year 10-year 4.49 4.52 4.82 1.04 2.14 3.47 .92 2.04 3.38 1.27 2.84 4.18 -3.22 -1.68 -.64 .23 .70 .71 .35 .80 .80 U.S. Treasury indexed notes5 5-year 10-year 2.43 2.48 2.04 2.26 1.55 1.92 1.54 2.17 -.89 -.31 -.50 -.09 -.01 .25 Municipal general obligations (Bond Buyer)6 4.51 5.03 4.57 4.86 .35 -.17 .29 Private instruments 10-year swap 10-year FNMA7 10-year AA8 10-year BBB8 10-year high yield8 5.44 5.34 6.12 6.57 9.21 3.14 4.04 6.99 9.25 16.41 3.07 3.88 6.33 8.49 12.79 3.98 4.56 6.12 7.71 12.15 -1.46 -.78 .00 1.14 2.94 .84 .52 -.87 -1.54 -4.26 .91 .68 -.21 -.78 -.64 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 6.59 5.65 4.98 4.91 4.78 4.77 5.38 4.95 -1.21 -.70 .40 .04 .60 .18 Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month Record high Change to June 18 from selected dates (percent) 2009 Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 D.J. Total Stock Index Level Date Mar. 17 Apr. 28 June 18 Record high 2009 Mar. 17 2009 Apr. 28 14,165 1,565 5,049 856 15,807 10-9-07 10-9-07 3-10-00 7-13-07 10-9-07 7,396 778 1,462 404 7,878 8,017 855 1,674 473 8,754 8,556 918 1,808 509 9,393 -39.60 -41.32 -64.19 -40.47 -40.57 15.68 18.02 23.64 26.24 19.24 6.72 7.39 8.00 7.75 7.31 1. Secondary market. 2. Financial commercial paper. 3. Bid rates for Eurodollar deposits collected around 9:30 a.m. eastern time. 4. Derived from a smoothed Treasury yield curve estimated using off-the-run securities. 5. Derived from a smoothed Treasury yield curve estimated using all outstanding securities and adjusted for the carry effect. 6. Most recent Thursday quote. 7. Constant-maturity yields estimated from Fannie Mae domestic noncallable coupon securities. 8. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. _______________________________________________________________________ NOTES: August 6, 2007, is the day before the August 2007 FOMC meeting. March 17, 2009, is the day before the March 2009 FOMC monetary policy announcement. April 28, 2009, is the day before the most recent FOMC monetary policy announcement. ________________________________________________________________________ -4- The International Economy U.S. Current Account The U.S. current account deficit was $406 billion at an annual rate in the first quarter of 2009, $214 billion narrower than in the fourth quarter (revised) of last year and the smallest deficit since the fourth quarter of 2001. For the second consecutive quarter, the narrowing of the current account deficit was the result of a substantially narrower deficit in goods and services, as imports have fallen more than exports. A somewhat smaller surplus in investment income in the first quarter offset a somewhat smaller deficit in other income and transfers. U.S. Current Account (Billions of dollars, seasonally adjusted annual rate) Goods and Investment Other Period services, income, income and net net transfers, net Annual 2007 -701.4 97.9 -123.1 2008 -695.9 125.6 -135.7 Quarterly 2008:Q2 Q3 Q4 2009:Q1 Change Q2-Q1 Q3-Q2 Q4-Q3 Q1-Q4 Current account balance -726.6 -706.1 -731.4 -743.8 -578.0 -364.8 112.3 143.7 92.1 84.3 -131.8 -136.7 -133.6 -125.5 -750.9 -736.7 -619.5 -406.0 -0.8 -12.4 165.8 213.2 -41.7 31.4 -51.6 -7.8 8.8 -4.9 3.1 8.1 -33.7 14.2 117.2 213.5 Source: U.S. Department of Commerce, Bureau of Economic Analysis. U.S. International Financial Transactions The balance of payments data also included more complete information on financial flows in the first quarter. U.S. direct investment abroad and foreign direct investment into the United States both slowed notably, primarily reflecting weaker equity capital flows and reduced retained earnings (see lines 6 and 7 of the attached table “Summary of U.S. International Transactions”). On net, direct investment provided an inflow of $11 billion, about the same as in the past two quarters. Other flows from non-bank -5- concerns, bank-reported data available only quarterly, and foreign acquisitions of U.S. currency on net provided a very small inflow (lines 9 and 10). Despite the more complete information on financial flows in the balance of payments release, it is clear that the data collection systems are not capturing all types of transactions and all types of counterparties for cross-border financial flows. Indeed, despite the substantial narrowing of the current account deficit, the statistical discrepancy in the first quarter was still a sizable positive $55 billion at a quarterly rate, similar to that recorded over the past several quarters. A positive discrepancy indicates some overreporting of the current account deficit or under-reporting of net financial inflows. With the release of the first-quarter data, the Bureau of Economic Analysis also published revised estimates of the current account for previous years. The current account deficit was increased $33 billion in 2008, mostly in the fourth quarter. The fourth-quarter increase primarily reflected higher income payments on foreign direct investment in the United States. There were also large revisions to financial flows, especially in 2007 and 2008. These revisions primarily reflect recent surveys of U.S. holdings of foreign securities and foreign holdings of U.S. securities. Taken together, the surveys implied smaller net inflows through securities transactions, which contributed to a significant widening of the statistical discrepancy. -6- Summary of U.S. International Transactions (Billions of dollars; not seasonally adjusted except as noted) 2007 2008 2008 Q3 -108.9 Q4 -286.5 Q1 313.6 2009 Mar. 22.7 Apr. 97.8 451.1 -54.6 Q2 138.0 475.2 36.8 33.0 405.5 479.9 -8.4 45.5 430.0 182.3 0.3 16.3 165.8 117.5 8.9 16.1 92.5 -17.9 -16.0 -3.4 -11.4 70.8 -7.4 -5.0 83.2 11.9 6.2 5.3 0.4 37.3 1.9 -1.4 36.8 -24.1 -534.6 -44.3 -226.4 -268.7 242.8 10.8 60.5 212.5 559.7 -31.0 252.0 374.9 -266.5 ... ... -81.7 28.3 -91.4 -31.8 311.5 -247.8 -33.0 -9.2 673.9 67.1 -8.6 384.7 230.7 71.1 197.0 -185.0 2.5 56.6 40.0 18.3 -52.7 52.1 22.1 -23.9 79.1 -70.1 -35.4 2.6 52.7 81.6 -21.5 -3.8 -3.6 0.5 55.4 -45.2 -15.6 6.0 44.5 49.7 -18.7 1.5 11.9 -49.1 -23.0 -13.7 -15.5 3.1 5. U.S. net acquisitions (-) of foreign securities a. Bonds b. Stock purchases c. Stock swaps 4 -366.2 -218.5 -136.4 -11.3 64.0 64.2 3.4 -3.6 -40.3 -18.4 -19.9 -2.0 79.6 65.5 14.1 0.0 72.1 37.0 35.8 -0.8 -33.1 -31.8 0.6 -1.9 -3.1 -1.5 -1.6 0.0 -25.1 -14.8 -10.3 0.0 Other flows 5 6. U.S. direct investment (-) abroad 7. Foreign direct investment in the U.S. 8. Net derivatives (inflow, +) 9. Foreign acquisitions of U.S. currency 10. Other (inflow, +) 6 -398.6 275.8 6.2 -10.7 113.8 -332.0 319.7 -28.9 29.2 408.2 -103.6 100.7 -2.4 0.2 65.8 -54.1 62.8 -4.1 5.8 217.7 -84.5 96.8 -14.5 29.9 -89.1 -24.0 35.3 n.a. 11.8 -9.2 ... ... ... ... ... ... ... ... ... ... U.S. current account balance 5 Capital account balance 7 Statistical discrepancy 5 -726.6 -1.9 64.9 -706.1 1.0 200.1 -187.7 -0.7 81.4 -184.2 3.0 38.1 -154.9 -0.7 67.2 -101.5 -0.7 55.1 ... ... ... ... ... ... Official financial flows 1. Change in foreign official assets in the U.S. (increase, +) a. G-10 countries + ECB b. OPEC c. All other countries 2. Change in U.S. official assets (decrease, +) 1 Private financial flows Banks 3. Change in net foreign positions of banking offices in the U.S. 2 Securities 3 4. Foreign net purchases (+) of U.S. securities a. Treasury securities b. Agency bonds c. Corporate and municipal bonds d. Corporate stocks 4 Note: Data in lines 1 through 5 differ in timing and coverage from the balance of payments data published by the Department of Commerce. Details may not sum to totals because of rounding. 1. Includes changes in U.S. official reserve assets and in outstanding reciprocal currency swaps with certain foreign central banks. 2. Changes in dollar-denominated positions of all depository institutions and bank holding companies plus certain transactions between broker-dealers and unaffiliated foreigners (particularly borrowing and lending under repurchase agreements). Includes changes in custody liabilities other than U.S. Treasury bills. 3. Includes commissions on securities transactions and therefore does not match exactly the data on U.S. international transactions published by the Department of Commerce. 4. Includes (4d) or represents (5c) stocks acquired through nonmarket means such as mergers and reincorporations. 5. Quarterly data; seasonally adjusted. 6. Transactions by nonbanking concerns and other banking and official transactions not shown elsewhere plus amounts resulting from adjustments made by the Department of Commerce and revisions (in lines 1 through 5 and 8) since publication of the quarterly data in the Survey of Current Business. 7. Seasonally adjusted; consists of transactions in nonproduced nonfinancial assets and capital transfers. G-10 Group of Ten (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, United Kingdom, United States). ECB European Central Bank. OPEC Organization of the Petroleum Exporting Countries. ... Not applicable. Source: U.S. Department of Commerce, Bureau of Economic Analysis; U.S. Treasury International Capital reports with staff adjustments. 

Federal Reserve (2009, June 23). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20090624_part1

@misc{wtfs_greenbook_20090624_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2009},
  month = {Jun},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20090624_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}